“Eyjafjallajokull has blown three times in the past thousand years,” Dr McGarvie told The Times, “in 920AD, in 1612 and between 1821 and 1823. Each time it set off Katla.” The likelihood of Katla blowing could become clear “in a few weeks or a few months”, he said.

The 1783 eruption was devastating and had a global impact:

A quarter of the island’s population died in the resulting famine and it transformed the world, creating Britain’s notorious “sand summer”, casting a toxic cloud over Prague, playing havoc with harvests in France — sometimes seen as a contributory factor in the French Revolution — and changing the climate so dramatically that New Jersey recorded its largest snowfall and Egypt one of its most enduring droughts.

Cavalcade of Risk #66 is posted at Political Calculations, where the blogger who goes under the alias of Ironman takes an innovative approach by offering two editions with all posts presented in a grid-like format, applying a blog post rating system. See Investment Grade and Kit and Caboodle versions for this week’s entries.State cost variations – Risk & Insurance looked at variations in state workers comp costs for employers in all 50 states and determined that in this regard, Arizona is the most favorable place for employers. Other states with low workers’ comp costs include Arkansas, Indiana, Virginia, North Dakota and South Dakota. Michael Keating reports on survey results and discusses various structural factors within a state system that contribute to workers compensation costs. Note: my colleague Jon Coppelman was quoted in the article.Ohio – another scandal brewing? – According to The Cleveland Plain Dealer, “Federal agents are investigating links between Cuyahoga County Auditor Frank Russo and a politically connected firm that manages medical claims of injured workers and employed Russo’s son, according to subpoenas and interviews.” It’s a complicated story, and apparently part of a larger story on a federal investigation into Cuyahoga County corruption.The $18 million fraud charge – The CEO and CFO of Staffing Services, a firm based in southern California, are being charged with conspiracy to defraud the State Compensation Insurance Fund of $18 million in premium payments. While news reports aren’t specific as to how, the pair are being charged with providing false information. While we can’t know specifics in this case, such charges often relate to misclassification of employees. The stakes for this type of fraud are high – if convicted, each of the two men face the potential for 20 years in prison and up to $40 million in fines.Weathering the storm – worth your time: The Financial Crisis & the P/C Insurance Industry: Challenges Amid the Economic Storm – a presentation and analysis by Robert Hartwig of the Insurance Information Institute. This was presented to the Excess/Surplus Lines Claims Association in late September.Blood-borne disease and healthcare workers – the Centers for Disease Control has recently issued the results of a study showing that health care workers face an increased risk of dying from blood-borne diseases, such as HIV, and related illnesses compared with workers in other fields. The study encompassed data over a 20-year period, including 248,550 deaths from HIV/AIDS, hepatitis B and C, liver cancer and cirrhosis. Researchers were unable to determine how much of the increased risk is related to occupational versus non-occupational exposure.

Because AIG has been at the epicenter of the economic earthquake, many non-industry observers point to insurance as one of the villains and the industry is getting a black eye that may not be warranted. AIG’s problems did not surface in its insurance operations, which remained sound, but with their dubious investment portfolio which rocked the entire organization.
Not that insurance companies mightn’t have gotten in more trouble if left to their own devices, but the nature of the beast is that the industry operates in a highly regulated environment, both a blessing and a curse. In this case, more of the former.
In a recent gathering of its agency members, our partner and client Renaissance Alliance featured Robert Hartwig as a speaker. For those who don’t know Bob, as president of the Insurance Information Institute, he is the foremost public spokesperson for our industry. In his detailed presentation, he outlined 6 reasons why property-casualty insurers are better risk managers than banks and should therefore better weather the storm – reasons that I paraphrase here:

Risk management is based on underwriting discipline, pricing accuracy, and management of loss exposure

Low leverage – insurers don’t rely on borrowed money

Conservative investment philosophy

Strong relationship between underwriting and risk bearing

Strict regulation by state and federal authorities – more so than banks

More transparency to regulators and the public

That being said, just as a rising tide raises all boats, a lowering tide will affect all boats, too. One of the anticipated after-effects of the financial crisis will be an increase in regulation. Another is that the current economic downturn likely signals the bottom of a soft market. Buyers can expect a hardening of prices. Insurers depend on investment income. Currently, investment returns are going down as claim costs are going up due to inflationary pressure – that leaves only one place for prices to go.
Despite the fact that many brokers report that they see no end in sight to the current soft market, many industry insiders are predicting the onset of a hard market in the not-too-distant future. Here are a few opinions on the matter:Market Scout: “The financial markets have experienced a meltdown, several major insurers are in serious trouble, underwriting results are slipping and investment income is anemic at best. As a result, the soft market is winding down.” – see the accompanying charts.Joe Paduda notes that although workers comp rates are still dropping, there are two major factors that presage a hardening: First: “Medical trend in the group world is approaching double digits. Historically the work comp medical trend rate has been somewhat higher than group trend.” Second: “The investment market has imploded, likely driving down the value of the funds held for reserves and surplus. While most investments are in what used to be thought were ‘safe’ instruments, it may well be that regulators and rating agencies, newly sensitized to the potential problems with even ‘safe’ vehicles, will require carriers to take down the value of funds held in reserve.”
During recent earnings conference calls, Evan Greenberg, chairman and CEO of ACE Limited and AXIS CEO John Charman both agreed that a hard market is in the making.Reinsurers are predicting rising prices: “The world’s No. 1 and No. 4 reinsurers, Munich Reinsurance Co. and Hannover Re Group, on Monday predicted some business lines would see price increases of 10% or more in talks over the coming weeks to renew reinsurance contracts for 2009.”Ken A. Crerar, Council of Insurance Agents & Brokers president: “We won’t know until January 2008 renewals what toll the economic crisis has taken on the industry in general … What we do know is that investment income is down dramatically, carrier profitability is being eroded, net underwriting losses are higher and combined ratios are inching up over 100. How long carriers can maintain price cuts without damage to their financial health is anybody’s guess. These are very uncertain times.”
OK, what can a buyer do when faced with likely price increases? Some of the same things that a homeowner does in anticipation of foul weather: Tighten things up and go back to the basics. Be aggressive about preventing all workplace injuries and about managing any injuries that do occur. Strengthen your provider relationships. Tighten up your return-to-work programs. It’s our experience that when rates are low, workers comp can slip as a priority and get moved to the back burner. If it isn’t there already, it’s time to move workers comp back to the front burner.

We have a fight brewing over the Terrorism Risk Insurance Revision and Extension Act (TRIEA), which the House just voted to extend for 15 years. We live in unusual times when the white knight for the insurance industry is Barney Frank and the opponent is George Bush.
The House measure not only extended the bill, but also strengthened it:

“It would add group life insurance to the lines of insurance covered by the program, and it would cover terrorist attacks by Americans as well as by foreigners. It would also require commercial property and casualty insurance policies to cover losses from terrorist attacks involving nuclear, biological, chemical or radiological attacks. Typically such policies now exclude that coverage.“

According to other news reports, it would also kick in at $50 million, rather than the current $100 million.
Many in the insurance industry think that such a measure is vital to ensure industry solvency in the event of large-scale terror, particularly in workers comp. In other lines of insurance, carriers can price for the coverage or can simply refuse to extend coverage, but because workers compensation is statutory, these mechanisms aren’t available.
This is likely to produce pushback from the White House – it’s anticipated that the president will veto the measure, viewing it as an unacceptable expansion to a program that was intended as temporary. The White House issued a statement saying that the most efficient method for providing terrorism coverage will come from the private sector. In response, bill sponsor Barney Frank said, “There are in our midst people who believe in the free market so firmly that they believe in it the way other people believe in unicorns.”
Get out the popcorn, this could be an interesting contest. It may be a nail-biter, too, since the current law is set to expire at the end of the year and workers comp is heading into its heavy renewal season.

Some employers in Colorado and New York are learning that the so-called long tail of workers comp has more than one meaning. In the wake of a multitude of insurer insolvencies in recent years, many state guaranty funds are buckling under the burden, and turning to employers to help pick up the pieces.
Like many other states, Colorado has been suffering the ill effects of insurer insolvencies. In recent years, at least 14 insurers have gone out of business. The 1971 demise of Reliance is the most prominent and most notorious example. The Colorado Insurance Guaranty Association has been paying claims for injured workers of the insolvent insurers, but the Association now faces more than $40 million in unfunded liabilities. To shore up the troubled fund and continue paying claimants, the Association has taken to a new tactic: billing 26 of Colorado’s larger employers more than $2 million. … recently, employers have been surprised by letters announcing, in some cases, that they owe the association hundreds of thousands of dollars for claims that were paid. The association has had the power to recover money from large employers for more than 10 years, experts say, but few policyholders knew about it.
It has only been recently — within the last 18 months — the association has sought payment.
This comes as an unwelcome surprise to the employers who are being assessed. Employers are already contributing to the guaranty fund by way of a 2% surcharge on their premium.
This is a scenario that may soon be playing out in New York as well in the form of increased employer assessments. We recently posted an item about the dire straights of the Workers’ Compensation Security Fund. The Fund was scheduled for complete exhaustion as of the end of February leaving 7.500 injured workers in the lurch, but a deus ex machina in the form of an unexpected sum of cash from another state fund and from the liquidators of Home Insurance Co. bought a few weeks.
Among the proposals to shore up the Fund:A doubling of assessments on some employers is part of the Pataki administration’s recommended solution to the impending bankruptcy of the Workers’ Compensation Security Fund, along with borrowing $50 million from another state insurance fund. Both are subject to approval by the state Legislature.
Colorado and New York aren’t alone, simply the two states that are in the headlines this week. Obviously these short-term fixes are band-aids at best, and injured workers and employers alike deserve more security and more protection from our industry.
For those of you interested in a more in-depth treatment of the issue of insurer insolvencies, here are two policy-orientated papers of note:Managing the Cost of Property-Casualty Insurer Insolvencies in the U.S. (PDF) from the Center for Risk Management and Insurance Research, Georgia State University, December 2002. Note that one of the authors of this report is a fellow blogger, Martin Grace of RiskProf.Managing Insurer Insolvency 2003 (PDF) prepared for the Foundation for Agency Management Excellence by Stewart Economics, Inc., September 2003.

Robert Hartwig of the Insurance Information Institute says that worries about “anemic profits, dreadful underwriting results, the state of the stock market, solvency concerns and a tort system run amok” are still keeping property/casualty CEOs awake at night despite the hard market being in its third year. Read his analysis in an article appearing in NCCI’s 2003 Issues Report. (this link is a pdf file)